Italian government in new row over housing tax

ROME (Reuters) - Italy’s economy minister has warned against scrapping an unpopular housing tax, stirring a new row in the shaky left-right coalition over the levy which Silvio Berlusconi’s center right wants abolished.

Scarcely a day passes without a new dispute in the government - an uneasy alliance of former adversaries forced to work together after an inconclusive general election - raising speculation it may fall in the autumn.

Center-left Prime Minister Enrico Letta played down the tensions on Friday, admitting his government was sailing through “stormy seas,” but telling reporters his government was “more robust than our detractors believe.”

Berlusconi’s People of Freedom (PDL) party says Letta’s survival depends on eliminating the tax on primary residences, known as IMU, which brings in about 4 billion euros ($5.35 billion) a year in revenues.

Letta is having to juggle the PDL’s demand with European Union-mandated limits on an already strained budget. Government number crunchers aim to find a solution by the end of August, two weeks before the next payment of the tax is due.

Economy Minister Fabrizio Saccomanni - a politically independent technocrat - on Thursday issued a document with nine options for reforming the tax, which is currently suspended pending the changes, saying that a complete cancellation may not be best.

“The proposal to totally eliminate IMU on principal residences does not seem fully justifiable in terms of equity and efficiency,” he said in the document.

Another option presented was to create a new “service tax” combining the housing tax with a levy on waste disposal.

BERLUSCONI CONVICTION

Saccomanni stressed that his dry document offered no more than a “technical” contribution to the debate, but it still drew fury from the center right which is smarting from Berlusconi’s conviction for tax fraud last week.

“IMU on primary residences must be abolished, this is what was decided and this is what has to happen, pacts are clear, there’s no time for crazy proposals,” senior PDL lawmaker Renato Brunetta told La Repubblica daily.

But Deputy Economy Minister Stefano Fassina, a member of Letta’s center-left Democratic Party (PD), told the same paper that the coalition had merely agreed to renegotiate the IMU tax system, but not necessarily completely eliminate it.

Abolishing the tax would mainly benefit the rich, he said.

Letta called for calm: “I’m convinced we’ll find a compromise, we will discuss and we will decide, but we have to tone down the polemics,” he said.

The PD and the PDL were bitter rivals until joining together in a grand coalition to break a political deadlock following February’s election.

After Berlusconi’s conviction, Letta appealed to both sides to avoid a political crisis, warning that an early election under the present electoral system would produce “instability and fragmentation”.

The government risks being paralysed by internal strife, which is denting popular support as it struggles to find ways to end Italy’s longest post-war recession.

When research institute SWG asked Italians what had most struck them about the first few months of Letta’s government, 58 percent replied “nothing”.

Letta released a document on Tuesday to counter criticism and highlight what his government has done in its first 100 days in power, pointing to efforts to boost youth employment and cut red tape.

On Friday he said he would present a plan to sell off state assets in the autumn to try to bring down Italy’s huge public debt, the second largest in the euro zone after Greece as a proportion of national output.